Bitcoin (BTC) mining companies are encountering significant obstacles as a crucial profitability metric has plunged to its lowest level in recent history. Analysts from JPMorgan Chase, Reginald L. Smith and Charles Pearce, have noted that the daily block reward gross profit for miners fell by 6% month-over-month in September. This marks the third consecutive month of declining daily mining revenue and gross profit, despite a slight increase in average Bitcoin prices.
Impact of Bitcoin Halving on Miner Revenues
The recent decline in miners’ revenues can be traced back to Bitcoin’s software update, known as the Halving, which occurred in April this year. This event, which takes place every four years, has a significant long-term impact on Bitcoin’s price during each cycle. The Halving event reduces the block reward given to miners by 50% every four years, a mechanism intended to curb inflation and maintain Bitcoin’s capped supply of 21 million tokens.
What is even more alarming is that the recent Bitcoin Halving is projected to cause an annual revenue loss of over $10 billion for mining businesses, based on current BTC prices, which are approximately $60,750 as of Tuesday.
Rising Competition and Increasing Energy Costs
Despite a combined market capitalization of over $20 billion for 14 major US-listed mining companies, the industry is grappling with dwindling profits. Analysts also highlight the intensifying competition from major operators entering the US market, exacerbating the challenges for smaller mining entities. According to Bloomberg, as the number of participants in the BTC mining space increases, individual miners face a more competitive environment, resulting in a decreased likelihood of securing rewards.
Bitcoin mining is known for being highly energy-intensive, necessitating miners to invest billions in specialized hardware to validate transactions and vie for a limited number of Bitcoin rewards. The financial pressure is evident in the stock performance of leading mining companies. Shares of Marathon Digital Holdings Inc. and Riot Platforms Inc., two of the largest publicly traded miners in the US, have plummeted by 36% and 54%, respectively, this year.
Current Bitcoin Market Trends
As of this writing, Bitcoin, the largest cryptocurrency by market capitalization, is trading at $60,758, down nearly 5% in the past 24 hours and almost 6% over the past week. This decline follows a surge to a two-month high of $66,500 last Friday, driven by bullish sentiment surrounding the US Federal Reserve’s interest rate cut decision on September 18.
However, this price action can also be attributed to escalating geopolitical tensions in the Middle East between Israel and Iran, which have prompted investors to seek “safer” assets like gold.
Stay tuned for more updates on the challenges and developments in the Bitcoin mining industry.
